Sarah Watts, head of intermediary at Legal & General (General Insurance), explains why it is important for both landlords and tenants to have the right insurance
Being a landlord today is not without its challenges. Stringent affordability tests for lending and reductions in tax relief have created a challenging landscape for landlords.
Many are also unaware or maybe even confused about what they need in place when it comes to insuring their property.
With the other pressures on landlords, it’s perhaps understandable that this in an area that is sometimes neglected. Failure to address this, however, will only add other, unnecessary and potentially devastating problems further down the line.
Having the right insurance policy in place is essential for anyone renting out property in the private sector, yet according to The Emerging Landlord report, by Simple Landlords, only 65% have specialist landlord insurance in place. Even more worryingly, within that figure, 7% do not even know what insurance they have purchased or have no insurance in place at all.
This is often the case for “accidental landlords” thrust into the letting market due to a change in personal circumstances, such as inheritance or failure to sell their home when moving. Their insurance needs may be different to those of the professional landlord, but it’s still important to have cover is in place and that it’s the right kind.
Protecting your asset and income
First things first, landlords should ensure they’ve got the right policy in place to cover loss of rent as a result of an insured peril, such as a fire or flood, that can damage the property.
Building insurance will usually pay for the cost of damage and rebuilding of the property (though even here, policies vary so it’s important to check any exclusions); they will not pay the costs of lost rent, however, that’s where the specialist landlord policy comes in.
Secondly, it’s important to think about rent guarantee insurance. No matter whether you’re an accidental, pension-pot or professional landlord, you want the reassurance of knowing you’ll receive rent from your tenants on time each month, providing a steady and regular income.
Unfortunately, even if tenants are trustworthy, circumstances outside their control, including redundancy, the breakdown of a relationship, sudden bereavement or a severe illness could leave them unable to pay.
Rent Guarantee cover provides peace of mind for the landlord that they will receive what’s due every month regardless, and whether or not the property is occupied.
With the squeeze on profitability of letting property from tax changes, it is understandable some landlords are tempted to cut costs by not having these types of policies in place.
However, if an unexpected event triggers the cover, the policies quickly pay for themselves – just consider the cost of one month’s lost rent. Without cover, on the other hand, such an event can prove to be catastrophic.
A question for tenants, too
It’s not just landlords that fail to consider insurance, though. Many tenants also often miss its importance or even think the responsibility falls on the landlord to cover their possessions inside the home. But that’s not the case.
With the soaring value of the gadgets so many of us own, such as smartphones, tablets and laptops, as well as valuable bikes or (if unfurnished) furniture, contents insurance is more important than ever. And it’s not just the big ticket items we often think of that need cover. The value of clothes, makeup or accessories can quickly mount up.
Ironically, the growing awareness of the cost of phones (and some unfortunate experiences in many cases) does mean there has been an increase in the number of people taking out specialist policies for these, but it’s often poor value. Some pay as much as £15 pounds per month just to insure their phone, when they could pay a similar total monthly payment to insure the entire contents of their property.
Finally, a home is more than just the stuff in it, and people need to think about the roof over their head. Just as landlords should consider the impact if the worst happens, tenants should be asking themselves how they’d meet the rent and bills if they lost their job next week or took ill and could no longer work.
How long would your savings last before you fell behind on the monthly rent, and, in worst case, what would happen if you were evicted by the landlord? It’s important for tenants to consider cover such as income protection to ensure they could still meet their monthly outgoings.
As the numbers renting grow, we all need to be asking these questions. Whether you’re a landlord or renting within the private rental sector, having the right insurance in place is crucial. It provides both peace of mind and financial security, protecting against the accidents, illnesses and losses that can unexpectedly derail plans for any of us.
